How safe is the money of small investors in Germany?
It has already been more than one year since the bankruptcy of Lehman bank has triggered a financial crisis in the United States and the entire world. Since the number of bankruptcies has been increasing, many investors have lost a lot of money. Indeed, almost everyone is wondering how safe his investments are. Politicians have reacted to this problem and have adjusted German law to protect deposits. The law became effective as of June 30th.
One of the most obvious changes is the increase in the amounts that is protected. Before the law was adjusted, only 20,000 Euros were guaranteed. The first step taken has been to rise that amount now to 50,000 Euros and this will again be elevated to 100,000 Euros until 2011. There is no longer a deductible of ten percent to be paid by the customer in case of a loss. All private customers, business partnerships and small corporations are protected under this law.
The protection includes all forms of deposits such as traditional savings and time deposits. Certain forms of saving bonds are also protected. The deadlines have been adjusted as well. Previously, the refund of the deposits could take up to three months before the adjustment would be made. Now the bank has to reimburse the customer no later than 30 days after the deposit is lost. Many banks offer better compensation than the law requires though.
While mutual savings banks provide a full guarantee for all deposits, many small private banks have united to form a fund for the protection of deposits. Every customer is guaranteed to get refunded up to a limit of 30 percent of the bank´s own equity. De facto, this means that each customer is protected against the loss of at least 1 million euros.
Political guarantees are not to be forgotten. Chancellor Merkel has given a public guarantee that all deposits are safe. It can be assumed that the German federal government would always fulfill such a commitment to avoid a breakdown due to loss of customer confidence.